Strong exports helped boost the Philippine economy in the second quarter. Associated Press
MANILA — The Philippine economy grew 6.4% in the second quarter, making it one of Asia’s fastest-growing countries and deepening expectations for further rate increases.
While China and other Asian economies are looking at easing monetary policy to spur growth, the Philippines is moving in a different direction, casting off its long-held reputation as the “Sick Man of Asia.”
The government of President Benigno Aquino III, since coming to power in 2010, has increased public spending on infrastructure. The country’s nearly 10 million overseas workers, who send money home, have kept local demand strong even as the global economy remains fragile. The business outsourcing industry, which employs almost 1 million people, also has fuelled growth.
Consumption, which accounts for just under two-thirds of the economy, grew 5.3% in the April-June quarter, driven higher by remittances from overseas workers that have grown 14% this year in local currency terms.
“A lot of foreign brands [are] opening in our malls. The economy is creating a lot of opportunities,” said Jeffrey Lim, vice president at SM Prime Holdings Inc., which runs the nation’s largest chain of shopping malls.
Higher exports, which include electronics and agricultural products, also aided growth. Capital Economics, a London-based macroeconomics research organization, said the Philippines has developed a competitive manufacturing base in recent years which looks set to benefit as low-end manufacturing leaves China because of wage increases. Manufacturing grew 10.8% from a year earlier in the second quarter.
With inflation now at a three-year high, many economists now forecast the central bank will raise rates at their next meeting on Sept. 11 after a rate hike last month. Other Asian central banks from China to Thailand have eased monetary policy this year to help their economies.
There were some dark spots in the second-quarter data. Public construction spending fell, in part due to increased scrutiny of Mr. Aquino’s decision in October 2011 to speed up infrastructure spending without congressional approval. The Supreme Court in July ruled the spending was unconstitutional, a charge which Mr. Aquino has vowed to fight.
Rising inflation and higher rates could dent consumption in the months ahead, some economists said.
But there are other positive factors, including the government’s low debt, which means it is likely to ramp up spending on public projects.
“The country’s strong fiscal position means the government has plenty of scope to support growth by increasing spending,” Capital Economics said in a note to clients, although it noted the scrutiny of these outlays would probably lead to slower dispersals than in the past. Write to Cris Larano at <cris.larano@wsj.com>